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CEE Banking Sector Report - 2015

  • June 2015
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 79 pages

The current report reviews the developments in the banking sector in the region of Central and Eastern Europe (CEE) and in the following countries in particular (in alphabetical order): Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, and Ukraine. It tracks the major recent market developments, with data available up to June 22, and provides an overall picture of the current trends and the outlook for the sector, including consolidation and mergers and acquisitions (M&A) activity. The report provides also an insight into the specifics of the banking sector in each separate country.

Key points:

oThe CEE banking sector, which is dominated by Western European banks (with the exception of Russia, where the sector is dominated by the government), is still suffering from an outflow of liquidity towards parents. This, combined with weak credit demand (amid soft economic recovery) and reduced risk appetite by banks, has led to subdued lending activity;

oMost CEE countries' banking sectors were profitable last year, with Poland hitting an all-time high. The exceptions are Hungary, where banks reported a record high loss in 2014 due to regulatory-ordered one-off foreign currency loan settlements, Romania, where the industry started to recover after a massive cleaning of the loan portfolio, and war-torn Ukraine;

oInterest margins across the region, although tightened, are still much higher than in Western Europe. Growth potential is also much stronger amid low levels of indebtedness compared to the more developed economies;

oM&A activity is focused mostly in Poland (where the regulator opposes further consolidation in the sector), Hungary (where the state is the major buyer of bank assets,) Romania, the Czech Republic and Slovakia;

oWith a few exceptions, the non-performing loan (NPL) ratio remains uncomfortably high across the region, hurting profitability and credit growth;

oThe major risks for the CEE banking sector are related to the ongoing Russia/Ukraine conflict, as well as to the developments in the Greek debt crisis. A potential banking crash in Greece could have a spillover effect, mainly on Bulgaria, where 23% of the banking system assets are held by Greek lenders.

Table Of Contents

CEE Banking Sector Report - 2015
Executive summary8


Macroeconomic developments9

EBRD sees Eurozone recovery boosting growth in Central Europe and the Baltics9

Major trends and outlook for the CEE banking sector11

EBRD tries to kick-start bank lending as CEE convergence falters11

Outflow of bank liquidity continues12

SandP sees foreign banks pulling out of Russia and Ukraine13

Central Europe offers some relief as RBI net profit halves in first quarter13

RBI draws in its horns in CEE14

Erste rules out acquisitions as it reports record loss15

Baltic States16

Moody's: Outlook turns negative for Baltic banking system17


Estonian financial system stable, but risks persist says central bank17

Estonian loan quality aids financial stability, says central bank18

Banking sector net profit shrinks 26% in 201419

Banking sector net profit soars 2.4 times in Q119

Steady growth in the loan and lease portfolio continues in April20


Latvian financial market watchdog sets priorities until 201721

Banking sector net profit rises 26.5% in 201421

Net profit keeps on growing in January-April, lending keeps on shrinking22


IMF says banking system strengthening23

Banking sector profit drops 24% in 201423

Banking sector profit grows 10% y/y in Q124

Banks to seek alternatives to improve profitability24

Lending remains sluggish, loan quality worsens slightly in Q125

Deposits fall after hitting record high at end-201425

Capitalisation improves further26

Geopolitical tensions overshadow low interest rate concerns - survey26


Recent developments and trends26

Banking sector turbulence26

Concerns remain...27

...but are to be addressed28

Greek woes29

Bulgarian banking sector profit rises 22% y/y in January-April29

Deposits grow moderately30

Lending plummets after Corpbank's collapse30

Problem loans worryingly high30

MandA activity30

Bulgaria's Doverie United Holding to buy local ?okuda Bank30

Czech Republic31

Recent developments and trends31

Czech banking profit recovers in 201431

Czech loan growth accelerates to six-month high in April31

Czech corporate loans seen growing 5%-6% in 201532

Czech banks continued to ease credit standards in Q132

Czech mortgage rates bouncing back from record lows33

New Czech mortgage loans at two-year high in May33

Czech financial sector's resilience continues growth - central bank33

SandP maintains low to moderate risk rating on Czech banking sector34

MandA activity34

Austrian banks reportedly facing off to buy Citi's Czech retail business34

Alfa and BNP Paribas reportedly racing for Zuno Bank35

UniCredit Czech Republic and Slovakia acquires factoring provider Transfinance35

General Electric plans to sell Czech banking arm36


Recent developments and trends36

Banking sector reports record high loss in 201436

Hungary plans bank tax reliefs to boost lending37

Hungarian central bank warns of loans risk, while bank lending continues fall38

Hungary's central bank puts up EUR1.1bn for conversion of forex retail loans39

Hungary to stir up market with new ratio requirement on mortgage portfolios39

Banking association estimates Hungary's forex loan moves cost lenders HUF1trn40

UniCredit announces large scale branch closures in Hungary40

Raiffeisen to scale down retail banking operations in Hungary41

Austria's Oberbank eyes expansion on Hungarian market41

MandA activity41

State boosts ownership in banking sector41

Hungarian central bank approves state acquisition of Budapest Bank42

Hungarian state reportedly set to add Sberbank to bank collection42

Hungary's appetite for banks not yet sated, suggests central banker43

Hungary reportedly set to pay EUR51mn for Erste stake43

Erste reportedly closing in on acquisition of Citi's Hungarian retail portfolio44


Recent developments and trends44

Polish banking profit hits 5-year high in 201444

Banking sector profit grows further in Q1 but uncertain outlook for the year remains45

Polish bank profit set to drop, but financial system stable, says NBP45

Banks grow loans and deposits in Q146

Polish banks foresee further easing of credit criteria46

Polish banks warn raised stability fund charges will hit credit47

Polish banks table new mortgage relief proposals as pressure rises47

Recovery on Poland's mortgage market fails to last49

MandA activity49

Polish bank sales unlikely to boost consolidation or profitability, says Fitch49

PZU buys Alior stake as "first step" in consolidation of the banking sector50

PZU reportedly in due diligence on RBI's Polish unit51

Chinese investment fund reportedly eyeing Raiffeisen Polbank52

General Electric looking for buyers of Bank BPH52

Poland's Bank Pocztowy to list in Warsaw by October, says minister53

Poland's FM Bank PBP sold to PE fund AnaCap53


Recent developments and trends53

Banking system reports robust EUR187mn profits in Q1, after massive losses in 201453

Bank loans in Romania 3.8% down y/y at end-April, currency substitution loses ground54

Romania's bank deposit base keeps expanding, by 6.3% y/y at end-April55

New bank loans issued in Romania up 5.7%y/y, to EUR3.45bn in January-April56

Bad loans remain constant in Romania in Q157

MandA activity57

Banca Transilvania acquires Volksbank Romania57

UniCredit Bank Austria buys out Tiriac's 45% stake in Romanian unit58

Banca Transilvania, OTB Bank reportedly compete to buy Piraeus' Romanian division58

Nextebank makes third merger offer to Romanian Banca Carpatica.58


Recent developments and trends59

Russia's key interest rate seen falling to at least 10% by end-201559

SandP: Government support critical for Russian banking sector, bad loans to soar59

Russian banks face widespread losses, says Moody's60

Russia's central bank expects rise in overdue loans and unprofitable banks in 201561

Russia abandons "bad debt" bank idea62

Central bank extends anti-crisis measures, exchange rate pegs62

Most eligible Russian banks apply for OFZ recapitalisation scheme62

One fifth of Russian banks under central bank supervision63

Central bank says banks fit for worst-case $40/barrel oil scenario63

Banks ask government for extra mortgage subsidies64

Russians losing trust in banks - survey64

Banks see record surge in loan fraud65

Major players65

Sberbank's Q1 profit drops 58% y/y, but above expectations66

VTB Bank reports RUB18.3bn losses in Q166

Charity spending pushes Russia's VTB Bank into first-quarter loss67

Gazprombank became lossmaking in 201468

Gazprombank to request capital support, may issue CNY bonds68


Recent developments and trends69

Slovak banks see profit rise 23% in January-April69

Deposits and loans rise in April, NPL ratio declines70

Slovak banking sector remains resilient, central bank reports70

C-bank imposes extra capital buffers on four systemically important banks70

MandA activity71

Trio reportedly eyeing Sberbank's Slovak unit71

Alfa and BNP Paribas reportedly racing for Zuno Bank71


Loss of operating Ukrainian banks up 8-fold y/y in Q172

Non-performing loans reach 25% of total in May73

Ukrainian bank insolvencies cost 9% of GDP in 2014-1573

Ukraine's fourth largest bank collapses75

Government support for Ukrainian banks dwindling - SandP76

Moody's sees increased insolvency risk in Ukrainian banking sector77

ICU estimates $11bn needed to recapitalise Ukrainian banking system77

State-owned Ukreximbank agrees $1.5bn debt restructuring with bondholders78

State-owned Oschadbank agrees $1.3bn debt restructuring deal78

EBRD insists on bank reforms79

Tables and charts

Table 1 GDP growth forecasts, %, y/y11

Table 2 Estonia: Banking sector earnings performance19

Table 3 Latvia: Banking sector earnings performance22

Table 4 Lithuania: Banking sector earnings performance24

Table 5 Bulgaria: Banking sector earnings performance29

Table 6 Czech Republic: Banking sector earnings performance31

Table 7 Romania: Stock of bank loans, RONbn55

Table 8 Romania: Stock of bank deposits, RONbn56

Table 9 Romania: Bad loans57

Table 10 Slovakia: Banking sector earnings performance69

Figure 1 Estonia: Quarterly loan losses and net profit of the banking sector20

Figure 2 Estonia: Monthly change and annual growth in loans and leases extended to domestic non-financial companies and households by banks operating in Estonia20

Figure 8 Bulgaria: Lending portfolio, outstanding amounts (BGN bn, rh axis) and y/y change30

Figure 9 Hungary: Banking sector earnings37

Figure 10 Romania: Banking sector net profit, quarterly, EURmn54

Figure 11 Romania: Stock of credit by debtor55

Figure 12 Romania: Non-government bank deposits56

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